What to consider when you lend money to your business

The reasons why you as an entrepreneur may need external financing are many. Maybe you have a chance at a bigger venue that would increase your turnover. Would you be able to serve more guests with a larger outdoor seating area or would you like to buy a large warehouse for Christmas shopping? Borrowing can be a wise business decision. Here are some good questions to ask yourself before you decide.

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How do I use a loan best?

Most of the time, as an entrepreneur, you know best where the money is most useful. Perhaps one more barber chair would mean a lot to your profitability? Or would your efficiency increase with a new restaurant oven? Most importantly, the loan is used in a well-thought-out way, opens up new sales opportunities and that you have thought through the risks before borrowing. Just borrow for exactly what you need. Don't borrow to solve an acute crisis.

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Will the loan pay off?

A profitable loan provides leverage through increased sales. The only way to find out is to count on possible additional sales and costs. How many more lunches do I have to sell for the new outdoor dining to pay off? How much extra sales does the new website have to generate?

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What's it going to cost?

The cost of the loan will vary depending on the solution you choose. Be sure to include all the fees of the loan. For bank loans, this can be, for example, interest, set-up fee and invoice fees. Also, the time that you spend on writing loan application, business plan and administration is an expense.

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Will I be able to pay it back?

Never take out a loan without doing a thorough analysis so that you feel confident that you can pay it back. Calculate what the refund means for your cash flow. Also consider what it means if the investment does not produce the expected effect.